The basic difference between perfect and monopolistic competition is the nature of products offered by sellers. In perfect competition, homogenous products are being offered by large sellers to buyers. On the other hand, in monopolistic competition, sellers sell differentiated products to the sellers.
To know the difference between these two, we must clear the meaning of these terms:
Meaning of Perfect Competition:-
It refers to the market in which there are many firms selling a certain homogenous product.
In other words, in this type of market, there are many buyers and sellers of a homogenous product. A single firm or seller cant decide the price of the product. Consequently, the market forces like demand and supply determine the price level. Also, the individual firms or sellers are price takers in this market as they have no control over the price.
Meaning of Monopolistic Competition:-
It refers to a market structure where there are many sellers of the product, but, each seller sells a differentiated product. Product differentiation is being promoted through trademarks, brand names, the difference in colour, size, and quality. It can also be in the form of differentiation in services and facilities provided to consumers. For example, Firms producing different brands of toothpaste: Colgate, Pepsodent, Close up and Sensodyne, etc.
In this market, the firm enjoys features of both monopoly and perfect competition markets. Thus, it is a situation between Monopoly and Perfect Competition. Trademark or brand name creates monopoly power for the firm. It means firms can charge a different price for their product. In other words, the firm tends to exercise control over the price. On the other hand, Since there are many producers of a commodity, it brings competition to the market. Thus, no firm has full control over the price. Hence, we can say, in monopolistic competition, the firm has partial control over the price.
Chart of Difference between Perfect and Monopolistic Competition:
| Basis of Difference | Perfect Competition | Monopolistic Competition |
| Meaning |
It refers to the market in which there are many firms selling a certain homogenous product. |
It refers to the market in which there are many firms selling differentiated products. |
| Nature of product offered | Sellers sell homogenous products in the market. | Sellers sell differentiated products in the market. |
|
Barriers for entry of new firms |
Here, there are no restrictions or barriers for new firms to enter the market. | It has not absolute freedom for the entry of new firms into the market. |
|
Price Discrimination |
There is no price discrimination by sellers as the prices are determined by supply and demand forces. | The monopolist can charge different prices for the differentiated feature of products. |
|
Demand Curve |
Here, the demand curve is perfectly elastic. | Here, the demand curve is more elastic. |
|
The slope of the Demand Curve |
Here, the demand curve is a horizontal straight line where AR=MR. | The demand curve in this market, demand curve sloped downward where AR>MR. |
|
Control over Price |
Here, the sellers don’t have any control over the price. | In this market, the sellers have partial control over the price. |
|
Knowledge of Market |
Under this market, buyers have perfect knowledge of the market. | Under this market, buyers have imperfect knowledge of the market. |
|
Selling Costs |
This market doesn’t require the selling costs to advertise the products. | This market requires selling costs to sell products in the market. |
|
Situation |
It is unrealistic in life. Thus, it is a hypothetical situation. | It is realistic in life. Thus, it is a practical scenario. |
Download the chart:-
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Conclusion:
Thus, both market structures are different in many aspects. The major difference can be explained by the fact that monopolistic competition is the hybrid or mixture of perfect competition and monopoly.
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